Bulls seen emerging amid caution

  • Markets
  • Saturday, 14 Dec 2019

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REVIEW: Just two days before the Dec 15 deadline to fresh US tariffs on Chinese goods, the White House has made China an offer it would be loath to refuse.

Prior to the offer coming on to the table, local equities were seen trapped in a state of paralysis with the deadline for fresh US tariffs on Chinese goods looming over the horizon.

Investor fatigue and heightened caution had set in after weeks of intense speculation and see-sawing between buy and sell moods.

However, on Thursday night, with all likelihood that the tariff deadline would be extended yet again, sources told American media that US negotiators are offering to cancel new China tariffs and reduce levies on by up to 50% on US$360mil of Chinese imports.

In return, the US wants China to increase agricultural purchases, intellectual property protections and greater access to its financial markets.

If this deal is not agreed to, the new levies on Chinese goods would come into effect by Sunday.

The news came as a fillip to bullish activity as earlier expectations of another extended tariffs deadline would have meant no formal truce between the two nations until 2020.

Up until the Friday session, the FBM KLCI had been locked in battle with the 1,570 resistance. The 50-day simple moving average drifted lower at 1,580, but as predicted, kept out of reach.

The market opened on Monday on a decidedly bearish note, which came at odds with global sentiment that had turned a positive US jobs data report into a buying opportunity.

One of the main culprits of the negative mood was index-heavyweight Tenaga Nasional, which continued to show volatility in its price movement.

The FBM KLCI fell 5.73 points to 1,562.71 on Monday, which snapped two successive days of gains and helped to eliminate the prospect of a an extended rebound.

The local market would meander along its sideways channel over the next two days as investors awaited major policy decisions from the US.

By Thursday, there was one attempt to break free of the immediate resistance, led by Petronas-related stocks as the government considered selling stakes in the oil counters to various provinces that produce the commodity.

On the wider global scene, a catalyst that helped to turn the market in a more bullish direction was the US Federal Reserve’s decision to maintain its interest rate, while signaling that it was not looking towards more changes unless there was significant evidence of inflationary pressure.

After days of uneventful price action on the FBM KLCI, the Fed decision triggered a pick-up on Thursday. At market close, the market was up 4.15 points at 1,567.34.

The sharp return to the resistance helped to signal the potential for a rebound. On the technical indices, the slow-stochastic momentum index had returned once more to a “buy” signal.

This would prove a reliable forecast as the overnight news of a potential trade deal kick-started a flurry of buying activity in global markets.

The FBM KLCI jumped to the 50-day SMA at 1,579 but in failing to breach, retraced some gains to end the day at 1,571.16.

News that Boris Johnson’s conservative party has won the UK elections also served to bolster sentiment as a mandate had been received to proceed with Brexit.

Currencies were also spurred into action as the ringgit tracked bullish momentum in the yuan to leap 0.5% against the US dollar to 4.13. It conversely plunged 1.3% against renewed confidence in the pound sterling at 5.54.

Statistics: The major index ended the week 2.72 points, or 0.2% higher over the previous Friday, at 1,571.16.

Total turnover for the trading week stood at 13.08 billion shares amounting to RM9.47bil compared with 11.39 billion shares worth RM8.1bil over the previous trading week.

Outlook: Friday’s strong performance on the local market was a welcome respite from the bearish mood seen prior. However, in failing to cross above the 50-day SMA, the outlook remains under pressure and shows investor caution ahead of a firm signing of a trade deal.

Given the growing momentum in the technical indicators, a positive crossing is expected in the coming sessions. The slow-stochastic has returned to an ascending position and is on the verge of triggering a “buy” signal, suggesting the rally will pick up pace.

Meanwhile the daily moving average convergence/divergence line is also approaching the signal line, and could be nudged into a “buy” signal over the coming session to indicate bullish momentum.

In the event of a breach of the 50-day SMA, the index could climb towards the 1,600 resistance with a higher target of 1,625, which hovers near the 200-day SMA.

A retreat from negative news flow however would see the index descending once more below 1,570 and return to the 1,550 support, which was twice challenged over the last two months.

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Fong MIn Yuan , Market Trend , FBM KLCI


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